July 6th, 2022
In December 2021 the Dutch court decided that the taxation in box 3 cannot be justified if the taxation is based on a fictitious efficiency that transcends the actual efficiency of the assets that are involved in box 3. Therefor taxation of assets in box 3 will change to a more justifiable taxation as it will no longer involve all the assets to the same tax prices. Instead taxation of the assets shall be divided into different tax prices to justify taxation of actual efficiency in box 3.
On the 15th of September 2020 the Dutch Budget for the year of 2021 was presented and (amongst others) the plan for the box 3 (income from wealth) taxation was revealed. The proposal published on the 6th of September 2019 has now been officially withdrawn.
The core of the responses to the previous plan from Dutch citizens and organizations is that although there is understanding for meeting people in the middle who mainly or exclusively have savings, the fixed investment return as determined in box 3 is not feasible for some categories of assets and that this is particularly the case with relatively small investors in box 3. The proposal in 2019 therefore could have led to small investors feeling compelled to invest in high risk investments. In addition, there is a strong desire to adjust box 3 by 2021, which is not possible for the original proposal.
Partly because of these responses, the proposal to amend box 3 has been revised. This mainly involves finding a different and more balanced distribution of the effects, both in terms of tax relief and increased taxation and the speed with which the adjustment can take place. Due to the short time between the start of the legislative path of this proposal and the proposed date of entry into force, namely January 1st 2021, there was insufficient time to issue the bill in public (internet) consultation.
The new proposal for the box 3 taxation
As of January 1st 2022 the tax burden in box 3 on taxpayers with relatively small assets (less than € 220,000) will become lighter.
- The tax-free allowance will increase from € 50,000 to € 50,650. For partners that translates to an increase from € 100,000 to € 101,300;
- The bracket limits are re-established, with the second bracket starting at a box 3 capital of € 50,650 and the 3rd bracket with a capital of € 962,000;
- As a result of the increase in the tax-free allowance, the number of taxpayers paying tax on income in box 3 will decrease by approximately 900,000. To partially cover this, the tax rate in box 3 will be increased from 30% to 31%.
Quick explanation of the box 3 tax system: In box 3, not the actual yields (dividend, interest, capital gains) on net assets are taxed, but rather an assumed yield.
For savings the assumed yield has decreased from 0,03% to -0,01%
For investments the assumed yield has increased from 5,69% to 5,53%
Value of assets |
-0,01 | 5,53 | Effective |
|---|---|---|---|
| € 0 – € 50,650 | 67% | 33% | 1,82 |
| € 50,650 – € 962,350 | 21% | 79% | 4,37 |
| More than € 962,350 | 0% | 100% | 5,53 |
Effective flat-rate on value of assets
1,82%
4,37%
5,53%
For example:
Partners with a joint net value of assets (box 3) of € 250,000 will pay € 1,841 in 2020. In 2021 the taxation over the same amount will be € 1,689 (see calculation below). In 2022 taxation over the same amount will be € 1,614
€ 250,000 -/- € 101,300 (tax-free allowance) = € 148,700
Value of assets |
-0,01 | 5,53 | |
|---|---|---|---|
| € 0 – € 50,5650 (€50,650) | 67% = € 33,935.5 | 33% = € 16,714.5 |
|
| € 50,650 – € 962,350 (€ 98,050) | 21% = € 20,590 | 79% = € 77,459.5 |
|
| More than € 962,350 | 0% | 100% |
Effective flat-rate on value of assets
First asset: 1,82 (tax rate 0,564)
Second asset: 4,37 (tax rate 1,355)
Third asset: 5,53 (tax rate 1,714)
| Total | € 54,525 | € 94,174 |
|---|---|---|
| x -0,01 | x 5,53 | |
| € -5,45 | € 5.208,82 |
Taxable base € -5,45 + € 5.208 = 5.202,55
Tax rate is 31%
5.202,55 x 31% = 1.612,79
Tax payable is
€ 1.612,79
Effective flat-rate on value of assets
1,82% (= 0.564% tax rate)
4,37% (= 1.355% tax rate)
5,69% (= 1,714% tax rate)
Based on the above, in general the effective tax rate on assets below € 50,650 is 0,564% and the effective tax rate for assets below € 950,000 is 1,355%.
In short, (0,564% x €50,650) = €285,67 and (1,355% x €98,050) = €1,328.58
In total a tax burden of € 1,614.25
Declaring assets if over € 31,340
In the future, taxpayers with assets worth more than € 31,340, will still have to declare their assets in box 3 in their personal income tax return. The fact that their assets are under the threshold of € 50,650 is irrelevant. The reason for this is twofold: 1. the Dutch tax authorities will share this information with other government bodies and 2. they will use this information to double check and determine whether or not taxes might still be owed.
Effect on combined income
The wealth taxes decrease for everyone. This has a downward effect on the combined income (verzamelinkomen) of this group. This is favorable because a lower combined income will increase the right to means-tested schemes for part of this group. This can be seen, for example, in the healthcare allowance, the child-related budget and the childcare allowance. The proposed changes in box 3 have no effect on the entitlement to and the amount of housing benefit and legal aid. This is because taxpayers who currently already have a taxable income in box 3 are already not eligible for these schemes.
